$1bn Spent on Kerosene Subsidy in 2015 – Osinbajo

Nigeria spent the sum of $1bn as subsidy on kerosene last year, Vice-President Yemi Osinbajo said on Tuesday.

According to him, the massive dependence on kerosene and firewood by millions of households across the country made the Federal Government to spend such an amount subsidising the commodity.

Osinbajo, who spoke at the Domestic Liquefied Petroleum Gas Stakeholders’ Forum organised by his office in collaboration with the Federal Ministry of Petroleum Resources in Abuja, explained that the low level consumption of the LPG by Nigerians was a major reason for the high demand for kerosene and firewood.

“The low LPG consumption in Nigeria has resulted in heavy dependence on kerosene and firewood as primary domestic cooking fuel. The government has undertaken huge subsidy of over $1bn in 2015 on kerosene subsidy,” he stated.

This, he said, was not beneficial for the country economically and health wise, as data at the disposal of the government showed that thousands of women and children had died as a result of diseases caused by firewood and kerosene polluted air.

The vice-president emphasised the need to unlock the domestic LPG value chain, stressing that this was one policy that the current government was passionate about since Nigeria had one of the largest gas reserves in the world.

He stated that the gas sector had the potential to revolutionise Nigeria’s fuel consumption, adding that a gas policy was being developed to address the gas development issues.

Osinbajo also noted that in 2015, operators imported 40 per cent of the total volume of domestic LPG consumed in Nigeria, a development that impacted the country’s foreign exchange reserves adversely.

He stated that the country’s LPG consumption recorded a steady decline until 2007 when the Nigeria Liquefied and Natural Gas Company intervened, adding that since then, the demand for domestic gas had been on the increase.

He said, “In the gas policy, liquefied petroleum gas has been identified as a viable source of stimulation of the socio-economic health of our nation. Nigeria’s LPG consumption had been declining until the NLNG intervened and since then, our LPG consumption has grown from 50 metric tonnes per annum to 400MTPA.

“Though this signifies some improvement in domestic LPG consumption, it translates to a per capita consumption of less than 2.5kg when compared to higher per capita consumption of some African countries. Also, about 40 per cent of our domestic LPG consumption in 2015 was imported, this impacts on our foreign exchange.”

The Managing Director, NLNG, Mr. Tony Attah, stated that despite the progress recorded in the domestic LPG sub-sector, there were still bottlenecks frustrating the full-fledged development of the market.

Also on Tuesday, Osinbajo said the government hoped to conclude the sale of a $1bn Eurobond by the end of the first quarter of 2017 and would seek to make its foreign exchange market more flexible.

The country is in its deepest recession in 25 years and needs to find money to make up for shortfall in its budget. Its revenues from oil have plunged due to low international prices and militant attacks on the crude-producing heartland, the Niger Delta, cutting output.

To help cover its budget shortfalls, the government was keen to ensure it was collecting taxes efficiently, Osinbajo told Reuters in an interview.

“We will continue to consider the issue of raising tax and raising VAT. But at the moment, we are more concerned with ensuring that we really improve our coverage,” he said, referring to tax collection.

The government began the process of appointing banks for the sale of the Eurobond in September and had said it wanted to issue the bond by the end of the year. It has yet to announce a lender to lead the sale.

“At the very latest, between the end of the year and the first quarter of next year, we will begin to see all that process concluded,” Osinbajo said.

The vice-president said the severe loss of petro-dollars had caused serious foreign exchange shortages and had been worsened by attacks on oil pipelines and export terminals.

The government had wanted to issue the Eurobond to help plug a gap in its record N6.06tn budget this year, in addition to tapping concessionary loans from the World Bank and China as its oil revenues fell.

So far, only the African Development Bank has come to its aid, approving a $600m loan, the first tranche of a total $1bn package.

Osinbajo also said his office was working with the central bank to make the foreign exchange market more flexible and more reflective of actual demand and supply.

The regulator in June officially ended its policy of pegging, or fixing, the naira’s exchange rate at 197 per dollar to let the currency float freely. But the exchange rate has since been stuck at N305 to N315 on the official market due to dollar shortages, while on the black market, the naira is changing hands at 470 per dollar.

Nigeria’s crude production, which was 2.1 million bpd at the start of 2016, fell by around a third in the summer following a series of attacks by Niger Delta militants who want a greater share of the country’s energy wealth to go to the impoverished southern oil-producing region.

“At one point, we were losing almost one million barrels per day, which translated to 60 per cent of oil revenues…and that affects the availability of dollars,” Osinbajo said.

He also said the government was prepared to talk with the militants but that maintaining security was essential for law enforcement.

About the Author

Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

About us

INVESTORS KING is a digital news media that provides comprehensive analysis on business, finance, economy, technology and government policy. We are a team of dedicated professionals that simplify complex financial data and information for everyday Nigerians.

We are committed to bringing insights around today's key global business topics – from increasing global risks and uncertainties to transformative technology and business models.